ACCC takes action against Coles over alleged treatment of suppliers

The Australian Competition and Consumer Commission has this morning launched legal proceedings against Coles over its alleged treatment of suppliers, in an action that will send shockwaves through the supermarket and grocery sectors.

The competition watchdog alleged that the nation’s second biggest supermarket chain engaged in unconscionable conduct in relation to its Active Retail Collaboration (ARC) program, in contravention of the Australian Consumer Law.

The ACCC has alleged that in 2011, Coles developed a strategy to improve its earnings by obtaining better trading terms from its suppliers. It is alleged that one of the ways Coles sought to improve its earnings was through the introduction of ongoing rebates to be paid by its suppliers in connection with the Coles ARC program, based on purported benefits to large and small suppliers that Coles asserted had resulted from changes Coles had made to its supply chain.

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Coles’ target, the ACCC claims, was to obtain $16 million in ARC rebates from smaller suppliers.

‘’Coles was ultimately seeking an ongoing ARC rebate in the form of a percentage of the price it paid for the Supplier’s grocery products, which, for its smaller suppliers, was the sum of a percentage which Coles asserted was referable to the value to the supplier of being able to access the Coles supplier portal and, where applicable, a percentage based on the asserted value to the supplier for Coles having changed its ordering patterns to order products in ‘economic order quantities’,” the ACCC said in a statement this morning.

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The ACCC alleges that in relation to 200 of its smaller suppliers, Coles required agreement by the supplier to the rebate within a matter of days.

‘’If these suppliers declined to agree to pay the rebate, Coles personnel were allegedly instructed to escalate the matter to more senior staff, and to threaten commercial consequences if the supplier did not agree. The ACCC alleges that, in a number of cases, threats were made when suppliers declined to agree to pay the rebate.’’

In a statement released by Coles this morning a spokeswoman said the supermarket chain was ‘‘totally committed to negotiating fairly and working collaboratively with its suppliers, providing opportunities for suppliers to grow.’’

She said this had been integral to Coles turnaround from the start.

Coles was a supporter of building strong relationships with suppliers and the growth of the wider grocery manufacturing industry in Australia.

She said the ACCC legal action concerns a detailed supply chain program implemented by Coles over two years ago as a part of its strategy to develop a more efficient and internationally competitive supply chain.

The ACCC alleges that, in a number of cases, threats were made when suppliers declined to agree to pay the rebate

‘‘The project involved improvements to both supply chain collaboration and efficiencies in logistics.’’

The Coles spokeswoman said it was designed to deliver benefits to Coles, suppliers and customers through lowering costs and improving availability of stock in its stores.

The ACCC is alleging among other things that Coles engaged in unconscionable conduct towards 200 of its smaller suppliers by namely:

■ providing misleading information to suppliers about the savings and value to them from the changes Coles had made;

■ using undue influence and unfair tactics against suppliers to obtain payments of the rebate;

■ taking advantage of its superior bargaining position by, amongst other things, seeking payments when it had no legitimate basis for seeking them; and

■ requiring those suppliers to agree to the ongoing ARC rebate without providing them with sufficient time to assess the value, if any, of the purported benefits of the ARC program to their small business.

A spokesman for Coles told Business Day this morning: ‘’Coles will vigorously defend the allegation made against it by the ACCC.’’

Coles is expected to put a full statement shortly.

ACCC chairman Rod Sims said the alleged conduct of Coles was capable of causing significant detriment to small suppliers’ businesses.

‘’This could have resulted in these businesses becoming less able to plan and less able to innovate in the market, with resulting reduced economic efficiency and consumer detriment,” Mr Sims said in a statement this morning.

“The ACCC alleges that Coles used undue pressure and unfair tactics in negotiating with suppliers, provided misleading information and took advantage of its superior bargaining position, so that its overall conduct was in all the circumstances unconscionable. If this conduct is established in court, the ACCC expects that the community will share the ACCC’s view that business should not be conducted in this way in Australia,” Mr Sims said.

“When we called for market participants to provide information to the ACCC on a confidential basis to assist the ACCC’s investigation, I committed that the ACCC would seek to maintain that confidentiality. In accordance with that commitment, the documents and information relied on by the ACCC in these proceedings were obtained by use of the ACCC’s compulsory statutory information gathering powers in a subsequent phase of the investigation”.

The ACCC is seeking pecuniary penalties, declarations, injunctions and costs.

These proceedings arise from a broader investigation by the ACCC into allegations that supermarket suppliers were being treated inappropriately by the major supermarket chains. That broader investigation is continuing, the competition regulator said.